Enter next year’s expected dividends per share, the required rate of return, and the expected constant dividend growth rate to estimate the stock’s intrinsic share price using the Gordon Growth (Dividend Discount) Model.
- All Business Calculators
- All Price Calculators
- Stock Calculator (Profit Calculator)
- Cost Per Share Calculator
Share Price Formula
The following formula is used to estimate a stock’s intrinsic share price under the Gordon Growth (Dividend Discount) Model. This model assumes dividends grow at a constant rate forever and requires that the required rate of return is greater than the growth rate (r > g).
SP = D_1 / (r/100 - g/100)
- Where SP is the intrinsic share price ($/share)
- D1 is the expected dividends per share next year ($/share)
- r is the required rate of return (%)
- g is the expected constant dividend growth rate (%)
Share Price Definition
A share price is the price per share of a publicly traded company (typically the most recent trading price in the market). This calculator, however, estimates an intrinsic share price based on expected dividends, a required rate of return, and an assumed constant dividend growth rate.
Share Price Example
How to calculate share price?
- First, determine the dividends per share.
This will be the expected dividends per share for the upcoming year (D1).
- Next, determine the required rate of return.
Estimate the required rate of return (discount rate) for the stock (for example, using CAPM or a comparable required return).
- Next, determine the dividend growth rate.
Estimate the expected constant growth rate of dividends (g) and ensure that r > g.
- Finally, calculate the share price.
Calculate the intrinsic share price using the Gordon Growth Model formula.
FAQ
What is a Share Price Calculator?
This Share Price Calculator estimates a stock’s intrinsic value per share using the Gordon Growth (Dividend Discount) Model. It uses next year’s expected dividend per share (D1), the required rate of return (r), and an assumed constant dividend growth rate (g).
How do you calculate intrinsic share price using dividends?
Using the Gordon Growth Model: P0 = D1 / (r – g), where r and g are expressed as decimals (for example, 9% = 0.09). For the model to be valid, dividends are assumed to grow at a constant rate indefinitely and r must be greater than g.
Why is it important to compare intrinsic value and market price?
The market share price is what the stock trades for today, while an intrinsic value estimate is a model-based benchmark. Comparing the two can help investors evaluate whether a stock may be priced above or below a dividend-based valuation assumption set.
